Agribusiness for Africa

The role of big business in African agriculture often divides opinion. Some seeing it as an opportunity for sustainable economic growth in the sector, some as a new form of colonialism with richer countries exploiting Africa’s food growing conditions and spare land to supply their own countries. Whether a positive development step or a risk to food security, agribusiness on the continent looks set to grow.

Agriculture, particularly the development of agribusiness and agro-industry sectors, has been the driver of economic growth in countries across the globe. In Africa, agribusiness and agro-industries account for more than 30% of national incomes as well as the bulk of export revenues and employment. Given its links to smallholder farming, development of agribusiness could be used to help tackle poverty and hunger in rural communities.

Colonial systems of governance were designed to extract resources from Africa for use elsewhere rather than processing and adding value within the continent. Agribusiness could develop the value addition arm of the agricultural industry and help reduce Africa’s dependence on unprocessed commodities where the bulk of the average retail price is retained by the countries in which the commodity is consumed. The introduction of new players in the agricultural sector could also help diversify sources of growth and exports to reduce reliance on a limited number of export commodities.

Kenya since the 1990s have invested in products, internal systems, and supply chains to supply fresh vegetables to British supermarkets. Considered a success, Kenya’s experience shows that a well-organized industry in a low income country through collaboration between the public and private sectors and the strengthening of links between businesses and educational institutes, can use standards for competitive gain.

The United Nations Industrial Development Organisation (UNIDO) book, Agribusiness for Africa’s Prosperity, outlines the current status of agribusiness and agro-industrial activities in Africa, and situates them in historical and global context. It analyses the opportunities for diversified growth, and assesses the existing and potential sources of demand growth for agribusiness development in Africa.

With the advent of agribusiness, the whole agricultural sector could benefit through improved infrastructure, access to technology and better functioning markets. Indeed for companies to invest in African agriculture, an enabling business climate must be developed through government and international partnership, action that may enable farmers to capitalise on market opportunities coming from better trade links and growing urban populations. An emerging, productive and modern agricultural sector may also act to engage youth in the agricultural sector (youth unemployment is a growing concern on the continent).

The 2013 World Bank report, Growing Africa. Unlocking the potential of agribusiness, documents the potential of the agribusiness sector in Africa through examples and highlights the important of good policies, a conducive business environment, and strategic support from governments. Agribusiness in general being seen as needed to build global competitiveness and as an opportunity for growth employment and food security.

Greg Page, President and Chief Executive of Cargill, explained in a recent BBC podcast “Is agribusiness good for Africa”, that farmers in Africa could make more money using the continent’s comparative advantage at producing certain export commodities, such as green beans. But does this mean less food for domestic consumption will be produced on the continent and could that negatively impact people’s food security? He thinks not. If farmers growing crops for export in one country buy crops from another then the whole agricultural sector wins. Such an economic argument will not sit well with many people and fails to account for those farmers unable to take advantage of export opportunities. Although a commercial outlook may lead to a more profitable and sustainable African agricultural sector, business is not best positioned to look out for the needs of the poorest, many of whom are rural farmers. Smallholders rather than commercial farmers are widely seen as the key to lifting the over one billion people out of poverty.

Some believe agribusiness could put small-scale farmers and rural communities at risk, particularly if it leads to their reliance on global markets and exposes them to fluctuating global prices for crucial farming inputs such as seeds, and food.

Of course deciding whether agribusiness is good for Africa or not is a simplified way of looking at a complex set of issues. In many cases agribusiness may bring sound benefits for many people while in others it may be detrimental to local livelihoods. Even if the resounding answer to the question is yes, agribusiness should be supported, developing the right climate for businesses to flourish is a challenge in itself. Carlos Lopes, in his article for Africa Renewal “why we need more agribusiness in Africa”, states four key factors in developing a policy framework that removes barriers to agribusiness development in the continent:

1) Ensuring that the right combination of agricultural, industrial and trade policies is in place to encourage sufficient production of raw material as well as the efficient distribution of produced products

2) Ensuring that rights to land and natural resources are recognized and enforced to secure the transfer of rights to encourage productive use of land and boost investor confidence

3) Pursuing new and alternative sources of funding such as sovereign funds and domestic resources, creating incentives for the private sector to make investments and

4) Using public-private partnerships to finance agribusiness or facilitate capacity building through technical and entrepreneurial skills training.

We would add to this list the need to enable and help small-scale farmers to take advantage of commercial opportunities, to reduce the barriers faced by rural farmers in increasing productivity and to help protect the most vulnerable from outside market forces that could diminish their livelihoods.

The role of agribusiness in Africa is growing. The G8 New Alliance for Food Security and Nutrition, launched two years ago aims to accelerate responsible investment in African agriculture and lift 50 million people out of poverty by 2022. Food giants such as Cargill, Yara International and Monsanto, have signed up as well as 16 governments. The pledges made by 10 African countries in their New Alliance co-operation frameworks include changes to laws and regulations that make it easier for companies to do business by easing export controls and tax regimes, and by ring-fencing huge chunks of land for investment.

Some believe the New Alliance to be a flawed project, detrimental to Africa’s development by opening up country doors to land grabbing and seed companies of rich countries. The entrance of new multi-national companies to African agriculture could lock farmers into buying costly seed at the expense of threatened genetic seed diversity, important for food security. Some country agreements already include the provision for areas of land to be leased over the long-term for use by companies. Such actions may undermine African-led business development and commercialisation.

Perhaps rather than asking whether agribusiness is good for Africa we should be asking how can we make agribusiness good for Africans, and in particular build capacity within the continent for home-grown business solutions to agricultural challenges? Agribusiness looks set to increase and this will likely be a positive development for the continent. Ensuring farmers and rural communities receive the benefits is the real challenge.

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This blog is run by Agriculture for Impact (A4I), an independent advocacy initiative led by Professor Sir Gordon Conway, author of the book One Billion Hungry: Can We Feed the World?

A4I aims to enable better European government support for productive, sustainable, equitable and resilient agricultural development in sub-Saharan Africa, focusing in particular on the needs of smallholder farmers.

Agriculture for Impact also convenes the Montpellier Panel, a group of European and African experts in the fields of agriculture, trade, ecology and global development.

It is based at Imperial College London and is supported through the Bill & Melinda Gates Foundation